Macroeconomics (with Aplia ITS Card) A Contemporary Introduction

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  • Edition: 7th
  • Format: Paperback
  • Copyright: 2006-12-18
  • Publisher: South-Western College Pub
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This very successful textbook is distinguished by a superior writing style that draws upon common student experiences to introduce economic concepts, making economic theory more accessible and interesting. "Case Studies" and numerous examples take advantage of students' intuitive knowledge of economics, building upon real-life situations. A streamlined design places pedagogy and illustrations directly within the flow of the text, making them less distracting and more useful for students. A fully integrated program of technology enhancements sets this text apart by pairing the book with numerous online multimedia learning tools that have been developed to help the text better serve a wide range of learning styles. The text uniquely integrates classroom use of The Wall Street Journal by including a complimentary student subscription offer, as well as in-text pedagogy to help students learn to analyze the latest economic events as reported in the Journal.

Table of Contents

Introduction to Economics
The Art and Science of Economic Analysisp. 1
The Economic Problem: Scarce Resources, Unlimited Wantsp. 2
Resourcesp. 2
Goods and Servicesp. 3
Economic Decision Makersp. 4
A Simple Circular-Flow Modelp. 4
The Art of Economic Analysisp. 6
Rational Self-Interestp. 6
Choice Requires Time and Informationp. 6
Economic Analysis Is Marginal Analysisp. 7
Microeconomics and Macroeconomicsp. 7
The Science of Economic Analysisp. 8
The Role of Theoryp. 8
The Scientific Methodp. 8
Normative Versus Positivep. 10
Economists Tell Storiesp. 10
Case Study: A Yen for Vending Machinesp. 11
Predicting Average Behaviorp. 12
Some Pitfalls of Faulty Economic Analysisp. 12
If Economists Are So Smart, Why Aren't They Rich?p. 13
Case Study: College Major and Career Earningsp. 13
Understanding Graphsp. 18
Drawing Graphsp. 19
The Slopes of Straight Linesp. 20
The Slope, Units of Measurement, and Marginal Analysisp. 20
The Slopes of Curved Linesp. 22
Line Shiftsp. 23
Some Tools of Economic Analysisp. 24
Choice and Opportunity Costp. 25
Opportunity Costp. 25
Case Study: The Opportunity Cost of Collegep. 25
Opportunity Cost Is Subjectivep. 26
Sunk Cost and Choicep. 27
Comparative Advantage, Specialization, and Exchangep. 28
The Law of Comparative Advantagep. 28
Absolute Advantage Versus Comparative Advantagep. 28
Specialization and Exchangep. 29
Division of Labor and Gains from Specializationp. 30
Case Study: Specialization Aboundp. 30
The Economy's Production Possibilitiesp. 31
Efficiency and the Production Possibilities Frontierp. 31
Inefficient and Unattainable Productionp. 32
The Shape of the Production Possibilities Frontierp. 32
What Can Shift the Production Possibilities Frontier?p. 33
What Can We Learn from the PPF?p. 34
Three Questions Every Economic System Must Answerp. 35
Economic Systemsp. 36
Pure Capitalismp. 36
Pure Command Systemp. 37
Mixed and Transitional Economiesp. 38
Economies Based on Custom or Religionp. 38
Economic Decision Makersp. 40
The Householdp. 41
The Evolution of the Householdp. 41
Households Maximize Utilityp. 41
Households as Resource Suppliersp. 42
Households as Demanders of Goods and Servicesp. 43
The Firmp. 43
The Evolution of the Firmp. 43
Types of Firmsp. 44
Nonprofit Institutionsp. 46
Why Does Household Production Still Exist?p. 46
Case Study: The Electronic Cottagep. 41
The Governmentp. 47
The Role of Governmentp. 48
Government's Structure and Objectivesp. 49
The Size and Growth of Governmentp. 50
Sources of Government Revenuep. 51
Tax Principles and Tax Incidencep. 51
The Rest of the Worldp. 52
International Tradep. 52
Exchange Ratesp. 54
Trade Restrictionsp. 54
Case Study: Wheels of Fortunep. 54
Demand and Supply Analysisp. 57
Demandp. 58
The Law of Demandp. 58
The Demand Schedule and Demand Curvep. 59
Shifts of the Demand Curvep. 61
Changes in Consumer Incomep. 61
Changes in the Prices of Related Goodsp. 61
Changes in Consumer Expectationsp. 62
Changes in the Number or Composition of Consumersp. 63
Changes in Consumer Tastesp. 63
Supplyp. 63
The Supply Schedule and Supply Curvep. 64
Shifts of the Supply Curvep. 65
Changes in Technologyp. 65
Changes in the Prices of Relevant Resourcesp. 65
Changes in the Prices of Alternative Goodsp. 65
Changes in Producer Expectationsp. 66
Changes in the Number of Producersp. 66
Demand and Supply Create A Marketp. 67
Marketsp. 67
Market Equilibriump. 67
Changes lin Equilibrium Price and Quantityp. 69
Shifts of the Demand Curvep. 69
Shifts of the Supply Curvep. 70
Simultaneous Shifts of Demand and Supply Curvesp. 72
Case Study: The Market for Professional Basketballp. 73
Disequilibriump. 74
Price Floorsp. 74
Price Ceilingsp. 74
Case Study: The Toy Business Is Not Child's Playp. 76
Fundamentals of Macroeconomics
Introduction to Macroeconorniesp. 78
The National Economyp. 79
What's Special About the National Economy?p. 79
The Human Body and the U.S. Economyp. 80
Knowledge and Performancep. 80
Economic Fluctuations and Growthp. 81
U.S. Economic Fluctuationsp. 81
Case Study: The Global Economyp. 83
Leading Economic Indicatorsp. 85
Aggregate Demand and Aggregate Supplyp. 85
Aggregate Output and the Price Levelp. 85
The Aggregate Demand Curvep. 86
The Aggregate Supply Curvep. 87
Equilibriump. 87
A Short History of the U.S. Economyp. 88
The Great Depression and Beforep. 88
The Age of Keynes: After the Great Depression to the Early 1970sp. 89
The Great Stagflation: 1973 to 1980p. 91
Experience Since 1980p. 92
Case Study: Over Seven Decades of Real GDP and Price Levelsp. 93
Productivity and Growthp. 96
Theory of Productivity and Growthp. 97
Growth and the Production Possibilities Frontierp. 97
What Is Productivity?p. 99
Labor Productivityp. 99
The Per-Worker Production Functionp. 100
Technological Changep. 101
Rules of the Gamep. 102
Productivity and Growth in Practicep. 102
Education and Economic Developmentp. 103
U.S. Labor Productivityp. 104
Slowdown and Rebound in Productivity Growthp. 105
Case Study: Computers and Productivity Growthp. 106
Output per Capitap. 107
International Comparisonsp. 107
Other Issues of Technology and Growthp. 109
Does Technological Change Lead to Unemployment?p. 110
Research and Developmentp. 110
Do Economies Convergep. 112
Industrial Policyp. 113
Case Study: Picking Technological Winnersp. 113
Measuring the Economy and the Circular Flowp. 116
The Product of a Nationp. 117
National Income Accountsp. 117
GDP Based on the Expenditure Approachp. 118
GDP Based on the Income Approachp. 119
The Circular Flow of Income and Expenditurep. 120
The Income Half of the Circular Flowp. 120
The Expenditure Half of the Circular Flowp. 122
Leakages Equal Injectionsp. 123
Limitations of National Income Accountingp. 123
Some Production Is Not Included in GDPp. 123
Leisure, Quality, and Varietyp. 124
Case Study Tracking a $12 Trillion Economyp. 124
What's Gross about Gross Domestic Product?p. 125
GDP Does Not Reflect All Costsp. 125
GDP and Economic Welfarep. 126
Accounting for Price Changesp. 126
Price Indexesp. 126
Consumer Price Indexp. 126
Problems with the CPIp. 128
The GDP Price Indexp. 129
Moving from Fixed Weights to Chain Weightsp. 129
Case Study: Computer Prices and GDP Estimationp. 130
National Income Accountsp. 133
National Incomep. 133
Personal and Disposable Incomep. 133
Summary of National Income Accountsp. 133
Summary Income Statement of the Economyp. 134
Unemployment and Inflationp. 136
Unemploymentp. 137
Measuring Unemploymentp. 137
Labor Force Participation Ratep. 139
Unemployment over Timep. 139
Unemployment in Various Groupsp. 139
Unemployment Varies Across Regionsp. 140
Case Study: Poor King Coalp. 142
Sources of Unemploymentp. 143
The Meaning of Full Employmentp. 144
Unemployment Compensationp. 145
International Comparisons of Unemploymentp. 145
Problems with Official Unemployment Figuresp. 146
Inflationp. 146
Case Study: Hyperinflation in Brazilp. 147
Two Sources of Inflationp. 148
A Historical Look at Inflation and the Price Levelp. 149
Anticipated Versus Unanticipated Inflationp. 150
The Transaction Costs of Variable Inflationp. 150
Inflation Obscures Relative Price Changesp. 151
Inflation Across Metropolitan Areasp. 151
Inflation Across Countriesp. 151
Inflation and Interest Ratesp. 152
Why Is Inflation Unpopular?p. 154
Aggregate Expenditure Componentsp. 157
Consumptionp. 158
A First Look at Consumption and Incomep. 158
The Consumption Functionp. 160
Marginal Propensities to Consume and to Savep. 160
MPC, MPS, and the Slope of the Consumption and Saving Functionsp. 161
Nonincome Determinants of Consumptionp. 162
Case Study: The Life-Cycle Hypothesisp. 164
Investmentp. 165
The Demand for Investmentp. 165
From Micro to Macrop. 167
Planned Investment and the Economy's Incomep. 168
Nonincome Determinants of Planned Investmentp. 168
Case Study: Investment Varies Much More than Consumptionp. 169
Governmentp. 170
Government Purchase Functionp. 171
Net Taxesp. 171
Net Exportsp. 171
Net Exports and Incomep. 171
Nonincome Determinants of Net Exportsp. 172
Composition of Aggregate Expenditurep. 172
Variable Net Exportsp. 175
Net Exports and Incomep. 175
Shifts of Net Exportsp. 175
Aggregate Expenditure and Aggregate Demandp. 177
Aggregate Expenditure and Incomep. 178
The Components of Aggregate Expenditurep. 178
Real GDP Demandedp. 180
What If Planned Spending Exceeds Real GDP?p. 181
What If Real GDP Exceeds Planned Spending?p. 181
The Simple Spending Multiplierp. 182
An Increase in Planned Spendingp. 182
Using the Simple Spending Multiplierp. 184
Case Study: Fear of Flyingp. 185
The Aggregate Demand Curvep. 186
A Higher Price Levelp. 186
A Lower Price Levelp. 188
The Multiplier and Shifts in Aggregate Demandp. 188
Case Study: Falling Consumption Triggers Japan's Recessionp. 190
Variable Net Exports Revisitedp. 192
Net Exports and the Spending Multiplierp. 193
A Change in Autonomous Spendingp. 193
The Algebra of Income and Expenditurep. 195
The Aggregate Expenditure Linep. 195
A More General Form of Income and Expenditurep. 195
Varying Net Exportsp. 196
Aggregate Supplyp. 197
Aggregate Supply in the Short Runp. 198
Labor and Aggregate Supplyp. 198
Potential Output and the Natural Rate of Unemploymentp. 199
Actual Price Level Higher than Expectedp. 199
Why Costs Rise When Output Exceeds Potentialp. 200
An Actual Price Level Lower than Expectedp. 201
The Short-Run Aggregate Supply Curvep. 201
From the Short Run to the Long Runp. 202
Closing an Expansionary Gapp. 202
Closing a Contractionary Gapp. 204
Tracing Potential Outputp. 206
Wage Flexibility and Employmentp. 206
Case Study: U.S. Output Gaps and Wage Flexibilityp. 208
Changes in Aggregate Supplyp. 209
Increases in Aggregate Supplyp. 209
Decreases in Aggregate Supplyp. 211
Case Study: Why Is Unemployment So High in Europe?p. 212
Fiscal and Monetary Policy
Fiscal Policyp. 215
Theory of Fiscal Policyp. 216
Fiscal Policy Toolsp. 216
Changes in Government Purchasesp. 216
Changes in Net Taxesp. 217
Including Aggregate Supplyp. 219
Discretionary Fiscal Policy to Close a Contractionary Gapp. 219
Discretionary Fiscal Policy to Close an Expansionary Gapp. 221
The Multiplier and the Time Horizonp. 222
The Evolution of Fiscal Policyp. 222
The Great Depression and World War IIp. 222
Automatic Stabilizersp. 223
From the Golden Age to Stagflationp. 224
Fiscal Policy and the Natural Rate of Unemploymentp. 225
Lags in Fiscal Policyp. 225
Discretionary Fiscal Policy and Permanent Incomep. 226
The Feedback Effects of Fiscal Policy on Aggregate Supplyp. 226
U.S. Budget Deficits of the 1980s and 1990sp. 227
Case Study: The Supply-Side Experimentp. 227
Case Study: Discretionary Fiscal Policy and Presidential Electionsp. 228
Balancing the Federal Budget-Temporarilyp. 229
The Algebra of Demand-Side Equilibriump. 231
Net Tax Multiplierp. 231
The Multiplier When Both G and NT Changep. 231
The Multiplier with a Proportional Income Taxp. 231
Including Variable Net Exportsp. 232
Money and the Financial Systemp. 233
The Evolution of Moneyp. 234
Barter and the Double Coincidence of Wantsp. 234
The Earliest Money and Its Functionsp. 234
Desirable Qualities of Moneyp. 236
Coinsp. 236
Money and Bankingp. 237
Paper Moneyp. 238
The Value of Moneyp. 239
When Money Performs Poorlyp. 239
Case Study: When Monetary Systems Break Downp. 240
Financial Institutions in the United Statesp. 241
Commercial Banks and Thriftsp. 241
The Birth of the Fedp. 241
Powers of the Federal Reserve Systemp. 242
Banking During the Great Depressionp. 243
Roosevelt's Reformsp. 244
Banks Lost Deposits When Inflation Increasedp. 246
Bank Deregulationp. 246
Savings Banks on the Ropesp. 247
Commercial Banks Were Also Failingp. 248
U.S. Banking Structurep. 249
Case Study: Banking Troubles in Japanp. 252
Banking and the Money Supplyp. 255
Money Aggregatesp. 256
The Narrow Definition of Money: M1p. 256
Case Study: Faking Itp. 257
Broader Money Aggregatesp. 258
Credit Cards and Debit Cards: What's the Difference?p. 259
How Banks Workp. 260
Banks Are Financial Intermediariesp. 260
Starting a Bankp. 261
Reserve Accountsp. 262
Liquidity Versus Profitabilityp. 262
How Banks Create Moneyp. 263
Creating Money Through Excess Reservesp. 263
A Summary of the Roundsp. 266
Reserve Requirements and Money Expansionp. 266
Limitations on Money Expansionp. 267
Multiple Contraction of the Money Supplyp. 267
Case Study: Banking on the Netp. 268
The Fed's Tools of Monetary Controlp. 269
Open-Market Operations and the Federal Funds Ratep. 270
The Discount Ratep. 270
Reserve Requirementsp. 271
The Fed Is a Money Machinep. 271
Monetary Theory and Policyp. 273
The Demand and Supply of Moneyp. 274
The Demand for Moneyp. 274
Money Demand and Interest Ratesp. 275
The Supply of Money and the Equilibrium Interest Ratep. 276
Money and Aggregate Demand in the Short Runp. 277
Interest Rates and Planned Investmentp. 277
Adding Short-Run Aggregate Supplyp. 278
Case Study: Targeting the Federal Funds Ratep. 280
Money and Aggregate Demand in the Long Runp. 282
The Equation of Exchangep. 282
The Quantity Theory of Moneyp. 283
What Determines the Velocity of Money?p. 284
How Stable Is Velocity?p. 284
Case Study: The Money Supply and Inflation Around the Worldp. 286
Targets for Monetary Policyp. 287
Contrasting Policiesp. 287
Targets Before 1982p. 289
Targets After 1982p. 289
The Policy Debate: Active or Passive?p. 291
Active Policy Versus Passive Policyp. 292
Closing a Contractionary Gapp. 292
Closing an Expansionary Gapp. 294
Problems with Active Policyp. 294
The Problem of Lagsp. 295
A Review of Policy Perspectivesp. 297
Case Study: Active Versus Passive Presidential Candidatesp. 297
The Role of Expectationsp. 298
Monetary Policy and Expectationsp. 299
Anticipating Monetary Policyp. 300
Policy Credibilityp. 301
Case Study: Central Bank Independence and Price Stabilityp. 302
Policy Rules Versus Discretionp. 303
Limitations on Discretionp. 304
Rules and Rational Expectationsp. 304
The Phillips Curvep. 305
The Short-Run Phillips Curvep. 307
The Long-Run Phillips Curvep. 307
The Natural Rate Hypothesisp. 309
Evidence of the Phillips Curvep. 309
Federal Budgets and Public Policyp. 312
The Federal Budget Processp. 313
The Presidential and Congressional Rolesp. 314
Problems with the Federal Budget Processp. 314
Possible Budget Reformsp. 315
The Fiscal Impact of the Federal Budgetp. 315
The Rationale for Deficitsp. 316
Budget Philosophies and Deficitsp. 316
Federal Deficits Since the Birth of the Nationp. 317
Why Have Deficits Persisted?p. 318
Deficits, Surpluses, Crowding Out, and Crowding Inp. 318
The Twin Deficitsp. 319
The Short-Lived Budget Surplusp. 319
Case Study: Reforming Social Security and Medicarep. 321
The Relative Size of the Public Sector in the United Statesp. 322
The National Debtp. 322
International Perspective on Public Debtp. 323
Interest on the National Debtp. 324
Who Bears the Burden of the Debt?p. 325
Crowding Out and Capital Formationp. 326
Case Study: An Intergenerational View of Deficits and Debtp. 327
International Macroeconomics
International Financep. 329
Balance of Paymentsp. 330
International Economic Transactionsp. 330
The Merchandise Trade Balancep. 330
The Balance on Goods and Servicesp. 332
Unilateral Transfersp. 332
The Capital Accountp. 333
Deficits and Surplusesp. 333
Foreign Exchange Rates and Marketsp. 335
Foreign Exchangep. 335
The Demand for Foreign Exchangep. 336
The Supply of Foreign Exchangep. 336
Determining the Exchange Ratep. 337
Arbitrageurs and Speculatorsp. 337
Purchasing Power Parityp. 339
Case Study:The Big Mac Price Indexp. 339
Flexible Exchange Ratesp. 341
Fixed Exchange Ratesp. 341
Development of the International Monetary Systemp. 341
The Bretton Woods Agreementp. 342
The Demise of the Bretton Woods Systemp. 342
The Current System: Managed Floatp. 343
Case Study: The Asian Contagionp. 343
Glossaryp. 347
Indexp. 355
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